Jeffry Picower, who died in 2009, was the biggest beneficiary of the Bernard L. Madoff Investment Securities fraud. He is accused of taking out $7.2 billion of other investors’ money in the Ponzi scheme during two-plus decades by Irving Picard, the court-appointed trustee in the liquidation of Madoff’s investment firm. Prior to his death, Picower denied any knowledge of the fraud and claimed he was a Madoff victim.
But Bernard L. Madoff Investment Securities was not Picower’s first brush with a Ponzi scheme. Picower had experienced a smaller-scale fraud that operated in a similar fashion some 30 years before Madoff pleaded guilty on all counts. According to court records stored on microfiche in the basement of Manhattan’s New York state court, Picower was a victim of a Ponzi scheme perpetrated by Adela Holzer in the 1970s.
A prominent Broadway producer who backed hits like Hair and Lenny, Holzer was also a Ponzi schemer who lured New York investors into fake business deals abroad with promised returns of 50%. The Wall Street Journal described her at the time as having “an aura about her much like that of Jay Gatsby, the F. Scott Fitzgerald character whose life and business deals were steeped in the glitter of wealth and romanticism.”
Holzer managed to get Picower to invest $616,000 in 1976, court records show. Picower thought he was investing in an Indonesian export-import business and real estate in Spain. By March 1977 Holzer reported Picower had profits of $253,000, but he was able to get back only $67,000 before the scheme imploded, according to court records. Picower sued Holzer, but the lawsuit was stayed by a bankruptcy proceeding.
Holzer was convicted in 1979 of seven counts of grand larceny and as a result spent two years in a New York state prison. In hading out his sentence, Justice Richard Denzer was quoted in the New York Times as saying Holzer had operated “the classic Ponzi scheme,” in which initial investors were paid off with the funds taken from subsequent investors.
“I was constantly being told orally, and in written communications from Holzer that ventures in which I had invested in had concluded at substantial profits,” Picower said in a 1977 affidavit. “The falsity of these representations was concealed from me.”
Picower was litigating over the Holzer scam when he made his first investments with Madoff. Three decades later Picower would again claim he had been duped by a Ponzi schemer.
Picower’s experience with Holzer only seems to add to the Picower mystery, which is explored in the current issue of Forbes. In his lawsuit against Picower, Picard claims that Picower, as a sophisticated investor, knew or should have known about the fraud because of various red flags. In legal papers, Picower’s lawyers say Picard’s “villainous portrayal of Mr. Picower is unsupported by facts.”
Does the fact that Picower got caught in a Ponzi scheme in the 1970s make it more unlikely that Picower was unaware of what was going on with Madoff since he had been put on notice about the possibility through personal life experience? Or does it show that Picower was predisposed to getting caught in such an investment scam? Or is it not really material information? He lost money the first time, but allegedly made $7 billion the second time. Both times he claims he didn’t know.
As for Holzer, she was released from her third stint in prison in June following eight years in a New York state prison. She is currently on parole supervision. She had been found guilty in 2002 of grand larceny after she took money from immigrants in return for bogus promises to help them get green cards. In 1990 she went to the New York state pokey for four years, pleading guilty to taking $4 million from investors who she promised would make a fortune from deals backed by her fake secret marriage to David Rockefeller.